Indian banks are recovering over 1.5 times as much money under the bankruptcy code — but it's still painfully slow



  • It’s been three years since the Insolvency and Bankruptcy Code (IBC) was implemented, and while progress hasn’t been as swift as expected, the results so far are still formidable.
  • Nearly ₹700 billion of recoveries took place in 2018-19, according to a report by CRISIL. This was twice as much as the ₹355 billion that was recovered in 2017-18 through other debt recovery schemes such as Debt Recovery Tribunal (DRT) and the SARFAESI Act.
  • However, the average resolution time for a case stood at 324 days, well over the maximum amount of 270 days as stipulated in the code.

It’s been three years since the Insolvency and Bankruptcy Code (IBC) was implemented, and while progress hasn’t been as swift as expected, the results so far are still formidable.

Nearly ₹700 billion of recoveries took place in 2018-19, according to a report by CRISIL.

This was twice as much as the ₹355 billion that was recovered in 2017-18 through other government debt recovery schemes such as Debt Recovery Tribunal (DRT) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act.

In fact, the recovery rate for 94 cases in 2018-19 was 43% and recoveries were twice as much as the overall liquidation value for assets in said cases, according to CRISIL’s President, Gurpreet Chhatwal. In comparison, the other schemes had a recovery rate of 25.2%.

As a result, the build up in India’s bad loans has decelerated in the recent past. CRISIL pegged the bad loan ratio at Indian banks at around 10% by the end of March 2019, compared with 11.5% at the end of March 2018.

However, the report wasn’t all cheers and hurrays.

CRISIL found that the average resolution time for a case stood at 324 days, well over the maximum amount of 270 days as stipulated in the code. Moreover, there are still 1,143 cases pending resolution, a third of which have been on the backburner for longer than nine months.

This is likely because the National Company Law Tribunal (NCLT), the judicial authority to facilitate resolution proceedings, does not have sufficient resources. In March, India’s Supreme Court had criticised the government for inadequate staffing and delays in hiring at the NCLT.

This was corroborated by a report by MoneyLife, which found that banks were searching for other resolution options owing to the long delays and extensive litigation under the IBC.

That being said, the IBC has had its fair share of champions among India’s corporate world as well as its politicians.

In a post titled, “Two years of insolvency and Bankruptcy Code (IBC),” in early January, Arun Jaitley said that as much as ₹800 billion worth of funds had been recovered following the resolution of 66 cases by the NCLT.

Looking ahead to the current financial year, Jaitley expected around ₹700 billion of additional recoveries to take place.

SEE ALSO:

India’s finance minister touts the success of the country’s recently-implemented bankruptcy code — but it still requires significant improvement

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